WASHINGTON (Reuters) - Canada must end its
low-price milk proteins policy to reach a U.S.-Canadian deal to update
the North American Free Trade Agreement, U.S. Agriculture Secretary
Sonny Perdue said.

Canada has encouraged overproduction and flooded export markets for milk
proteins used in cheese and yogurt, hurting U.S. dairy farmers, Perdue
said in an interview aired on Sunday on C-SPAN television.

"Our farmers don't have access to the Canadian markets the way that they
have access to us. Class 7 has to go. It can't be renamed something or
called something else," Perdue said when asked about dairy concessions
needed to reach a NAFTA deal, referring to a new milk class created last
year by Canada to price milk ingredients such as protein concentrates,
skim milk and whole milk powder.

"It allowed them to export milk solids on the world market and below
prices that cut into our opportunity for our dairy people to have access
to that world market," Perdue said.

Canada's closed, $16 billion dairy market is among the last sticking
points in talks between U.S. Trade Representative Robert Lighthizer and
Canadian Foreign Minister Chrystia Freeland, which broke up on Friday
without a deal.

Talks are expected to resume after Lighthizer travels to Brussels for
trade talks with European Union trade commissioner Cecilia Malmstrom on
Monday.

A spokesman for Freeland could not immediately be reached for comment on
Perdue's remarks.

White House economic adviser Larry Kudlow last week said milk was the
main issue standing in the way of a NAFTA deal.

Dairy cows are seen on a farm in Saint-Valerien-de-Milton, southeast
of Montreal, Quebec, Canada, August 30, 2018. REUTERS/Christinne
Muschi/File Photo

In an interview with Canada's Global News network published on
Sunday, Freeland declined to discuss specific issues in the talks
and noted that Kudlow is "not at the negotiating table." Freeland
added that to achieve a NAFTA deal, "It's going to take flexibility
on all sides."

Freeland said on Friday she and Lighthizer were making "very good
progress" in talks to save NAFTA amid increasing Canadian optimism
that a deal can be reached. President Donald Trump has struck a
trade deal with Mexico and threatened to push ahead without Canada,
a move that would kill NAFTA, which covers $1.2 trillion in trade
between the three countries, and further spook financial markets.

Perdue said on C-SPAN that Lighthizer has been "very clear" about
the need for the Class 7 pricing system to be repealed.

Asked if it would be gone from a NAFTA deal, he said, "I think it
should be. I think it will be gone."

In April 2017, Trump nearly withdrew from NAFTA after becoming
angered by the plight of Wisconsin dairy farmers whose milk protein
exports to Canada had been cut off by the Class 7 pricing scheme.
Trump decided to renegotiate NAFTA instead.